Terra Nova Energy Ltd - Claren Energy Corp
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Terra Nova Energy Ltd.
Management’s Discussion and Analysis (“MD&A”)
For the three months ended October 31, 2015
The following information, prepared as of December 22, 2015, should be read in conjunction with the
condensed interim consolidated financial statements of Terra Nova Energy Ltd. (the “Company” or “Terra
Nova”) for the three months ended October 31, 2015, together with the audited consolidated financial
statements of the Company for the year ended July 31, 2015 and the accompanying management’s
Discussion and Analysis (the “Annual MD&A”) for that fiscal year. The referenced condensed interim
consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”). All amounts are expressed in Canadian dollars ($) or Australian dollars (A$) unless
otherwise indicated.
Forward-looking Statements
Forward-looking statements look into the future and provide an opinion as to the effect of certain events
and trends on the business. Forward-looking statements may include words such as “plans”, “intends”,
“anticipates”, “should”, “estimates”, “expects”, “believes”, “indicates”, “suggests” and similar expressions.
This MD&A, and in particular, the “Outlook” section contains forward-looking statements. These forward-
looking statements include without limitation: statements about the Company’s exploration plans and
outlook; interpretations and discussion of seismic, drilling and well testing results and financing obligations
with regard to future exploration of the petroleum exploration licences or properties owned by, or, under
option to the Company. As such, all forward-looking statements are based on current expectations and
various estimates, factors and assumptions and involve known and unknown risks, uncertainties and other
factors. Information concerning the interpretation of seismic, drilling or well testing results may also be
considered a forward-looking statement as such information constitutes a prediction of what hydrocarbons
might be found to be present if and when hydrocarbons are discovered and recovered in economic quantity.
It is important to note that unless otherwise indicated, forward-looking statements in this MD&A describe
the Company’s expectations as of December 22, 2015. Readers are cautioned not to place undue reliance
on these statements as the Company’s actual results, performance or achievements may differ materially
from any future results, performance or achievements expressed or implied by such forward-looking
statements if known or unknown risks, uncertainties or other factors affect the Company’s business, or if
the Company’s estimates or assumptions prove inaccurate. Such risks and other factors include, among
others, risks related to the integration of acquisitions or new discoveries, if any; risks related to operations;
actual results of current exploration activities; actual results of current reclamation activities, if any;
conclusions of economic evaluations; changes in project parameters as plans continue to be refined; future
prices of hydrocarbons; accidents, labour disputes and other risks of the oil and gas exploration industry;
delays in obtaining governmental approvals or financing or in the completion of wells or integration with
hydrocarbon collection infrastructure, as well as those factors discussed in the section entitled “Risk
Factors” appearing elsewhere herein. Therefore, the Company cannot provide any assurance that forward-
looking statements will materialize; and subject to applicable laws, the Company assumes no obligation to
update or revise any forward-looking statement, whether as a result of new information, future events or
any other reason.
For a description of material factors that could cause the Company’s actual results to differ materially from
the forward-looking statements in this MD&A, please see Risks and Uncertainties.
General
Terra Nova Energy Ltd. was incorporated under the British Columbia Business Corporations Act and
continued under the laws of Alberta effective August 20, 2012. The Company’s principal business is the
acquisition and exploration of petroleum and natural gas properties. The Company’s shares trade on the
TSX Venture Exchange (the "TSX-V") under the symbol “TGC”, the Frankfurt Stock Exchange under the
symbol “GLTN” and the OTCQX marketplace under the symbol “TNVMF”. The Company's corporate
head office is located at Suite 880, 580 Hornby Street, Vancouver, British Columbia, Canada.
1Terra Nova Energy Ltd.
Management’s Discussion and Analysis (“MD&A”)
For the three months ended October 31, 2015
Highlights
1. On September 9, 2015, the Company announced that an agreement had been reached with its Joint
Venture co-venturers, Perseville Investing Inc. (“Perseville”) and Holloman Energy Corporation
(“Holloman”), to drill one well before the end of 2015 on PEL 444. Pursuant to the Joint Operating
Agreement, all parties agreed to drill a commitment well to test the “Baikal 1” target. The “Baikal 1”
target is one of multiple targets selected by Terra Nova’s technical team for drilling based on their
extensive interpretation work on the reprocessed date from the Wingman 3D seismic survey, using the
latest AVO and inversion techniques to further de-risk the prospects.
2. On October 6, 2015, the Company granted 1,300,000 stock options to certain consultants and a director
of Terra Nova’s Australian subsidiary. Each stock option will allow the holder to purchase a common
share of Terra Nova at an exercise price of $0.18 per share. Of the 1,300,000 options granted, 200,000
options were granted for a period of one year from the date of grant and 1,100,000 options were granted
for a period of five years from the date of grant.
3. On October 27, 2015, the Company announced that Senex Energy Ltd. was selected to drill the Baikal
1 well on PEL 444 on behalf of the Joint Venture. The drilling program commenced on November 23,
2015 and the Baikal 1 well was spudded on December 3, 2015. On December 9, 2015, the Company
announced that Baikal 1 reached target depth at 2,176 metres (7,138 feet) on time and under budget.
No hydrocarbons were found to be present and therefore the well will be plugged and abandoned.
Exploration and Evaluation Interests
Terra Nova, Holloman and Perseville, being the working interest holders of PEL 112 and 444, are subject
to the 2006 Joint Operating Agreement (the “JOA”). Terra Nova serves as operator. The current working
interest in PEL’s 444 and 112 is 48.5003% for Holloman, 30.8330% for Perseville and 20.6667% for Terra
Nova.
PEL 444 was in good standing until January 11, 2016 and PEL 112 is in good standing until January 10,
2019. Upon completion of the Baikal 1 well on PEL 444, the PEL 444 license is in good standing until 2020.
Exploration Activities
Seismic Surveys
The Company has commenced the reprocessing of PEL 112’s Mulka 3D seismic survey by employing
similar techniques that were used in the seismic reprocessing of PEL 444.
Drilling
On September 9, 2015, the Company announced that an agreement had been reached with its Joint
Venture co-venturers, Perseville and Holloman, to drill one well before the end of 2015 on PEL 444.
Pursuant to the Joint Operating Agreement, all parties agreed to drill a commitment well to test the “Baikal
1” target.
The Company budgeted A$3,000,000 to drill Baikal 1 at PEL 444 and A$62,896 as license administration
on PELs 112 and 444. The JV co-venturers were cash called, and to date, the JV has received an
aggregate of A$2,812,680 from Perseville and Holloman.
On October 27, 2015, the Company announced that Senex Energy Ltd. (“Senex”) had been selected to drill
the Baikal 1 well on PEL 444 on behalf of the joint venture. The Company, as operator, obtained a
competitive rate by leveraging Senex’s current drilling program in the region. Senex currently operates a
large acreage position in the Cooper-Eromanga Basins and has completed several successful drilling
programs that have led to new oil discoveries within those basins.
2Terra Nova Energy Ltd.
Management’s Discussion and Analysis (“MD&A”)
For the three months ended October 31, 2015
The drilling program commenced on November 23, 2015 and the Baikal 1 well was spudded on December
3, 2015. On December 9, 2015, the Company announced that Baikal 1 reached target depth at 2,176
metres (7,138 feet) on time and under budget. No hydrocarbons were found to be present and therefore
the well will be plugged and abandoned.
Although there were no hydrocarbon shows, the Baikal 1 well proved the existence of the Mid-Birkhead
channel system in PEL 444. These results will be included to improve the Company’s exploration model.
The experience in the Cooper-Eromanga basin has shown both wet and Hydrocarbon filled channels can
exist in close proximity to each other. Once this model is updated, the Company plans to review other
targets in the existing 3D covered area, which is only a fraction of PEL 444. Terra Nova has the necessary
finances to continue to fund its share of a future exploration program. With this well, the Company has
fulfilled its obligations with the Government of Australia on PEL 444 and enters a new five year license
period.
Quarterly Information
The following is selected financial data from the Company’s unaudited quarterly financial statements for the
last eight quarters ending with the most recently completed quarter, being October 31, 2015.
Three Months Ended ($)
October 31, July 31, April 30, January 31,
2015 2015 2015 2015
Total Revenues - - - -
Loss (167,132) (385,350) (134,529) (165,687)
Loss Per Share (basic and diluted)(1) (0.00) (0.00) (0.00) (0.00)
Exploration and evaluation interest
expenditures 15,344 52,828 185,085 165,823
Working capital (deficiency) 2,149,726 2,313,400 2,650,896 (26,149)
Total Assets 5,424,006 5,686,322 6,045,551 6,376,765
Three Months Ended ($)
October 31, July 31, April 30, January 31,
2014 2014 2014 2014
Total Revenues - - - -
Loss (707,061) (276,863) (275,685) (274,975)
Loss Per Share (basic and diluted)(1) (0.01) (0.00) (0.00) (0.00)
Exploration and evaluation interest
expenditures 126,254 35,851 145,884 63,359
Working capital (deficiency) (1,695,390) (1,375,005) (1,942,904) (1,599,525)
Total Assets 6,219,571 6,299,155 6,549,268 6,420,337
(1)
The basic and diluted loss per share calculations result in the same amount due to the anti-dilutive
effect of outstanding stock options and warrants.
The increase in loss recorded during the three months ended July 31, 2015 was primarily due to the costs
relating to the Annual General Shareholders’ Meeting (the “AGM”). The increase in loss recorded during
the three months ended October 31, 2014 was due to recording share-based payments expense of
$486,345.
3Terra Nova Energy Ltd.
Management’s Discussion and Analysis (“MD&A”)
For the three months ended October 31, 2015
Results of Operations
Three months ended October 31, 2015
The Company recorded a loss of $167,132 ($0.00 per share) for the three months ended October 31, 2015
as compared to a loss of $707,061 ($0.01 per share) for the three months ended October 31, 2014. The
table below details certain non-cash or unusual transactions that for the purposes of this discussion have
been adjusted out of the reported loss to produce an adjusted loss that forms a better basis for comparing
the period-over-period operating results of the Company.
2015 2014
$ $
Loss for the period as reported (167,132) (707,061)
Share-based payments 34,518 486,345
Interest, accretion and loan placement expense - 37,500
(1)
Adjusted loss for the period (132,614) (183,216)
(1)
Adjusted loss for the period is not a term recognized under IFRS. Non-IFRS measures do not have
standardized meaning. Accordingly, non-IFRS measures should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with IFRS.
Comments regarding certain of these items are as follows:
- Share-based payments represents the fair value of stock options granted during the periods. During
the three months ended October 31, 2015, the Company granted 1,300,000 stock options (2014 –
4,325,000 options);
- Interest, accretion and loan placement expense is a result of the convertible notes issued on June
28, 2013. On December 24, 2014, the convertible notes were converted into 13,636,364 common
shares.
The comments below relate to the results of operations excluding the items (primarily non-cash) discussed
above:
The approximate $51,000 decrease in the adjusted loss for the three months ended October 31, 2015 as
compared to the three months ended October 31, 2014 is due primarily due to a decrease in shareholder
communications expense and office and miscellaneous expenses.
Details of changes in certain expense items are as follows:
Audit and accounting fees of $42,711 (2014 - $45,039) include fees for general accounting services and
accruals for audit fees. The decrease during the period was due to a reduction in audit fees.
Filing and transfer agent fees of $11,172 (2014 - $11,673) include fees paid to the Company’s transfer
agent and fees paid to the TSX Venture Exchange and the OTCQX marketplace.
Legal fees of $12,588 (2014 - $12,948) in the current period are for general business matters.
Management fees of $59,717 (2014 - $51,914) include fees paid to the CEO, Henry Aldorf, the VP of
Finance, Nico Civelli and certain consultants.
Office and miscellaneous expenses of $14,922 (2014 - $29,106) includes expenses such as rent,
insurance, bank fees, interest, and office management. The decrease is primarily due to decreased rent
and office management.
4Terra Nova Energy Ltd.
Management’s Discussion and Analysis (“MD&A”)
For the three months ended October 31, 2015
Shareholder communications of $902 (2014 - $25,087) includes costs associated with marketing and
promoting the Company to current and potential shareholders.
Travel and related expenses of $nil (2014 - $6,046) includes executive travel to and from Australia and
other incidental travel.
Financing Activities and Capital Expenditures
The Company did not complete any financing activities during the three months ended October 31, 2015.
The JV received A$2,575,057 from Perseville and Holloman in October 2015 and a further A$237,623
subsequent to October 31, 2015. A substantial portion of these funds were used in December 2015 to drill
Baikal 1.
Liquidity and Capital Resources
The Company’s operations consumed approximately $131,000 of cash (before working capital items) for
the three months ended October 31, 2015. An additional approximate $82,000 of expenditures were
recovered on the oil and gas interests. The cash recoveries of approximately $82,000 was from the
recovery of A$136,000 from the JV co-venturers less total expenditures of approximately $54,000. The
cash requirement was fulfilled from cash on hand at the beginning of the period.
The Company’s aggregate operating, investing and financing activities during the three months ended
October 31, 2015 resulted in a net decrease of $86,132 in its cash balance of $2,409,469 at July 31, 2015
to $2,323,337 at October 31, 2015.
The Company is well capitalized to fund its share of a future exploration program.
The condensed interim consolidated financial statements have been prepared on a going concern basis,
which assumes that the Company will be able to meet its obligations and continue its operations for at least
the next twelve months. At October 31, 2015, the Company had not yet achieved profitable operations and
expects to incur further losses in the development of its business. At October 31, 2015, the Company had
working capital of $2,149,726. The Company will need additional financing to continue to develop its oil
and gas exploration and evaluation assets and to continue its operations. These factors may cast
significant doubt upon the Company's ability to continue as a going concern and, therefore, that it may be
unable to realize its assets and discharge its liabilities in the normal course of business. Management
believes that the use of the going concern assumption is appropriate for the financial statements.
Management believes that the Company will be able to obtain additional financing, through the issuance of
either shares or debt to fund continuing operations and exploration and development activities. Although
the Company has been successful in the past in obtaining financing, there is no assurance that it will be
able to obtain adequate financing in the future or that such financing will be on terms advantageous to the
Company.
5Terra Nova Energy Ltd.
Management’s Discussion and Analysis (“MD&A”)
For the three months ended October 31, 2015
Transactions with Related Parties
During the three months ended October 31, 2015 and 2014, the Company incurred the following
expenditures charged by directors and officers of the Company and/or companies they owned or were
significant shareholders of:
2015 2014
$ $
Non-audit accounting fees(1) 19,200 10,153
Legal fees (corporate secretary)(2) 1,438 4,840
Management fees(3) 39,950 39,000
Office and miscellaneous fees 5,000 15,000
Exploration and evaluation interests - consulting fees(4) 11,056 20,161
76,644 89,154
(1)
Includes fees billed by a company owned by a director, Rob McMorran.
(2)
Includes corporate secretary fees billed by a company owned by a director, Rob McMorran.
(3)
Includes fees billed by the CEO, Henry Aldorf, and fees billed by a company controlled by the VP
of Finance, Nico Civelli.
(4)
Includes fees billed by a company owned by the VP of Exploration, Chas Lane.
At October 31, 2015, accounts payable and accrued liabilities included $139,132 (July 31, 2015 - $106,653)
of amounts owing to directors and officers of the Company and/or companies they control or of which they
were significant shareholders. The amounts owing include amounts related to expenditures charged to the
Company and for reimbursements of expenditures paid for on behalf of the Company. The amounts owing
are unsecured, non-interest bearing and due on demand.
Key management includes the Chief Executive Officer, the Chief Financial Officer, the VP of Exploration,
the VP of Finance and the directors of the Company. Compensation paid or payable to key management
for services during the period amounted to $67,756 (2014 - $71,137). In addition, key management
received share-based payments of $6,034 (2014 - $359,839).
Financial Instruments
Classification of Financial Instruments
The Company’s financial instruments consist of cash, receivables and accounts payable and accrued
liabilities. The Company designated its cash and receivables as loans and receivables, which are
measured at amortized cost. The accounts payable and accrued liabilities are classified as other financial
liabilities, which are measured at amortized cost.
Discussions of risks associated with financial assets and liabilities are detailed below:
Foreign Exchange Risk
Foreign currency exchange rate risk is the risk that the fair value of future cash flows will fluctuate as a
result of changes in foreign exchange rates. A portion of the Company’s financial assets and liabilities are
denominated in Australian dollars. The Company monitors this exposure, but has no hedge positions.
6Terra Nova Energy Ltd.
Management’s Discussion and Analysis (“MD&A”)
For the three months ended October 31, 2015
The Company had exposure to Australian dollars as follows:
October 31, July 31,
2015 2015
A$ A$
Cash 673,011 108,408
Receivable from JV co-venturers 14,056 158,960
Accounts payable and accrued liabilities (4,973) (59,134)
Net exposure to Australian dollars 682,094 208,234
At October 31, 2015, a 1% change in the value to the Australian dollar as compared to the Canadian dollar
would result in a change in other comprehensive loss and equity attributable to shareholders of
approximately A$7,000.
Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument
fails to meet its contractual obligations. Credit risk arises from cash held with banks and financial institutions
as well as receivables from JV co-venturers. The maximum exposure to credit risk is equal to the carrying
value of the financial assets. The Company’s cash is primarily held with a financial institution.
Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest
rates. Except to the extent that the balance of cash is earning interest, the Company has no financial
instruments that could otherwise be exposed to interest rate risk.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its
financial liabilities. The Company manages liquidity risk by maintaining sufficient cash to enable settlement
of transactions on the due date. Management monitors the Company’s contractual obligations and other
expenses to ensure adequate liquidity is maintained.
Outstanding Share Data
a) Authorized Capital:
Unlimited common shares, without par value
b) Issued and outstanding:
87,533,785 common shares as at December 22, 2015
7Terra Nova Energy Ltd.
Management’s Discussion and Analysis (“MD&A”)
For the three months ended October 31, 2015
c) Outstanding options and warrants as at December 22, 2015:
Exercise
Price
Security Number ($) Expiry date
Stock Options 200,000 0.18 October 2, 2016
Stock Options 1,300,000 0.18 July 18, 2018
Stock Options 4,325,000 0.18 October 31, 2019
Stock Options 1,100,000 0.18 October 2, 2020
Stock Options 700,000 0.30 May 16, 2022
Warrants 1,266,250 0.25 January 30, 2016
Disclosure Controls and Procedures
In connection with National Instrument 52-109 (Certificate of Disclosure in Issuer’s Annual and Interim
Filings) (“NI 52-109”), the Chief Executive Officer and Chief Financial Officer of the Company have filed a
Venture Issuer Basic Certificate with respect to the financial information contained in the consolidated
financial statements for the three months ended October 31, 2015 and this accompanying MD&A (together,
the “Interim Filings”).
In contrast to the full certificate under NI 52-109, the Venture Issuer Basic Certificate does not include
representations relating to the establishment and maintenance of disclosure controls and procedures and
internal control over financial reporting, as defined in NI 52-109. For further information the reader should
refer to the Venture Issuer Basic Certificates filed by the Company with the Interim Filings on SEDAR at
www.sedar.com.
Risks and Uncertainties
Certain risks are faced by the Company which could affect its financial position. In general they relate to
the availability of equity capital to finance the acquisition, exploration and development of existing and future
exploration and development projects. The availability of equity capital to junior oil and gas companies is
affected by commodity prices, global economic conditions and economic conditions and government
policies in the countries of operation, among other things. These factors are beyond the control of the
management of the Company and have a direct effect on the Company’s ability to raise capital.
The Company's working capital and liquidity will fluctuate in proportion to its ongoing equity financing
activities. The Company requires a certain amount of liquid capital in order to sustain its operations and in
order to meet various obligations as specified under the its resource property acquisition agreements.
Should the Company fail to obtain future equity financing due to reasons as described above, it will not be
able to meet these obligations and may lose its interests in the properties covered by the agreements.
Further, should the Company be unable to obtain sufficient equity financing for working capital, it may be
unable to meet its ongoing operational commitments.
All of the Company's oil and gas properties are in the exploration stage and without known reserves.
Exploration, development and production of oil and gas involves substantial expenditures and a high degree
of risk. Few properties which are explored are ultimately developed into producing properties. Accordingly,
the Company has no material revenue, writes off its oil and gas interests from time to time, and operates
at a loss. Continued operations are dependent upon ongoing equity financing activities.
8Terra Nova Energy Ltd.
Management’s Discussion and Analysis (“MD&A”)
For the three months ended October 31, 2015
The Company has taken all reasonable steps to attempt to ensure that proper title to its oil and gas
properties have been obtained and that all grants of such rights thereunder, if any, have been registered
with the appropriate public offices. Despite the due diligence conducted by the Company, there is no
guarantee that title to such oil and gas properties will not be challenged or impugned. The Company’s oil
and gas property interests may be subject to disputes, prior unregistered agreements or transfers or
aboriginal land claims and title may be affected by undetected defects. In particular, Holloman has disputed
the Company’s ownership of a 5.8333% working interest in PEL 444 notwithstanding the fact that the
Company was transferred such interest pursuant to a Deed of Assignment and Assumption dated February
15, 2014. Although the Company maintains that it is the legal and beneficial owner of such interest, there
is no assurance that it will be successful in defending its title to such interest.
Outlook
The Company has secured the rights to explore more than 3,400 km² of PEL 112 and PEL 444 located on
the Western Flank of the Cooper-Eromanga Basin in South Australia. These properties are situated
adjacent to leases with recent oil discoveries, the prospects of which were largely matured using 3D
seismic, and there is considerable potential for further discoveries.
Since commencing exploration, the Company has completed 3D seismic surveys on a portion of PEL 112
and PEL 444. The Company has completed one exploration well on PEL 112, Wolfman 1, which resulted
in a dry hole. On December 9, 2015, the Company completed one exploration well on PEL 444, Baikal 1,
which resulted in a dry hole.
Terra Nova plans to use the results of the Baikal 1 well to improve the exploration model prior to finalizing
the next course of action. The Company has the necessary finances to continue to fund its share of a future
exploration program.
The Board of Directors has deferred the appointment of a Chief Executive Officer pending the outcome of
the exploration activities on PEL 112 and PEL 444. The Chairman of the Board of Directors will continue
to serve as the interim Chief Executive Officer.
Other Information
Additional information related to the Company is available for viewing on SEDAR at www.sedar.com.
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